Taxing time for MultiChoice as Nigerian demand sees stocks plummet

A dispute between Nigerian tax authorities and MultiChoice, Africa’s biggest pay-TV provider, has intensified, showcasing the risk international firms face as the continent’s largest economy tries to bolster revenue collections. 

MultiChoice was ordered by a Nigerian tribunal to pay 50% of a disputed $4.4bn (about R65,6bn) tax bill, prompting a rush to sell shares of the Johannesburg-based company and erasing $240m (about R3,5bn) of market value in less than two hours. The stock gained 3.6% at 9.23am on Thursday after the company said the court directive doesn’t compel it to pay half of the disputed amount. 

It may turn into a protracted standoff, if history is an indication. In 2015, SA’s MTN was slapped with a $5bn (now about R74,6bn) fine for failing to deregister subscribers in Africa’s most populous nation without proper registration. While the continent’s largest cellphone provider eventually settled, after months of negotiations, for a far lower penalty, its stock hasn’t fully recovered.

Earlier this year, Shoprite, Africa’s largest food retailer, followed at least four other companies in exiting the West African nation after struggling with supply-chain disruptions and repatriation of funds.

“Nigeria, while the biggest economy in Africa, comparatively has very low levels of tax collection,” said Greg Davies, a fund manager at SA’s Cratos Capital. “This has sometimes led to difficult situations for South African companies operating in the country. The South African government should speak out on this, as it potentially also has an impact on pension funds invested in businesses such as MultiChoice.”

MTN went on to have disputes about tax and dividends withdrawn from Nigeria, its biggest market. 

Nigeria’s tax revenue as a proportion of GDP is one of the lowest globally, according to the International Monetary Fund (IMF). President Muhammadu Buhari’s government collected $20bn (about R298bn) in taxes last year. That compares with SA’s $85,3bn (about R1,3-trillion).

And it’s not just tax battles that are a concern for South African investors. Earlier this year, Shoprite, Africa’s largest food retailer, followed at least four other companies in exiting the West African nation after struggling with supply-chain disruptions and repatriation of funds.

Nigeria’s Federal Inland Revenue Service imposed the penalty on MultiChoice as a condition to an appeal being heard in a Lagos court. The next hearing is on September 23. The stock declined 8% to a near 11-month low in Johannesburg on Wednesday.

The pay-TV provider continues to engage with authorities, the company said.

Nigeria’s tax authority asked lenders to freeze MultiChoice’s local bank accounts to recover the alleged tax arrears last month. The decision came after the company refused to grant access to its servers for an audit, Nigeria’s Federal Inland Revenue Service said at the time.

— Bloomberg News. More stories like this are available on bloomberg.com